China tech crackdown cycle nearing an end, Fidelity’s equity fund manager says
China’s antitrust crackdown on home-grown technology giants may be coming to an end, leaving stock valuations of some of the major firms at attractive levels.
That is the view of Hyomi Jie at Fidelity International, whose China consumer equity funds oversee US$7.3 billion in assets. One has beaten 96 per cent of peers in the past year. Hong Kong-based Jie sold some of her holdings in Alibaba Group Holding and Tencent Holdings earlier in the year, though they remain among her largest positions.
“What we can think about is whether we are in the start of this cycle, this regulatory pattern cycle, or we are closer to the end of the cycle,” said Jie. “I have a view that we are closer to the end of the cycle.”
While probes of billionaire Jack Ma’s Alibaba and Ant Group took three to four months, a second batch of investigations into firms such as Tencent and Meituan may proceed more quickly, indicating that the regulatory cycle could be wrapping up as key players in the industry have agreed on what needs to be done, she added.
China’s rapid-fire moves to curb anticompetitive practices by more than 30 technology firms have rattled investors, leaving them uncertain about the prospects of industry favourites. Shares of internet titans such as Alibaba and Tencent have fallen about 20 per cent from their recent peaks, driven also by a global tech sell-off.
“Couple months back, valuation was a reason for me wanting to trim these stocks even though I really like their fundamentals,” Jie said. “Now the valuations are working in favour of them because they are much less liked by other investors.”
Alibaba is trading at around 20 times its 12-month earnings estimates compared with 31 times for Tencent and 36 times for the Hang Seng Tech Index. Tencent, Alibaba and Meituan have lost more than US$400 billion combined in market value since mid-February, while the Hang Seng Tech Index slumped 25 per cent.
What moved the Hang Seng Index?
Beyond the tech industry, the Fidelity money manager has moved profits into cyclical stocks that are likely to benefit as the global economy recovers from the pandemic. Jie favoured Macau casino operator Galaxy Entertainment Group as she expects the city to be the first port of call for Chinese travellers after the pandemic.
“When Chinese people start to want to travel again outside China, Macau is the safest place for them to go,” she said. “Macau is an attractive destination for many mass and premium-mass customers” and there is a very tight control on supply of tourism resources there, Jie added.